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TERM INSURANCE

How to Choose the Best Term Insurance Plan?

Chaitali Mehendale Chaitali Mehendale 19 August 2019
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Most insurers offer a variety of term insurance plans tailored to fit in many situations. Here are a few key points to help you choose the right term insurance plan.

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When you are young, you don’t think about unfortunate events such as death and disabilities. However, as you start taking more responsibilities, the need for a back-up plan arises.

Providing financial security to your family often forms the base of your back-up plan. In this context, a life insurance plan becomes essential. Term insurance policy is the purest form of life insurance that you can get for yourself. It is crucial to evaluate your insurance needs and follow certain steps which can help you in choosing the right term insurance plan.

When most people choose term insurance, the first thing they would want to compare is the cost. While cost is important, you mustn’t give too much importance to the cost of term insurance or you may compromise the financial security of your family. To ensure your family's future is secured, here's a list of five essential features which will help you choose the best term insurance policy.

Claim settlement ratio of the insurance company:

The claim settlement ratio indicates the percentage of claims paid out of the total claims filed in a year. The higher the ratio, the easier it is for your nominee to claim the term insurance plan in your absence. The purpose of the term insurance plan is to secure the future of your dependents. The higher the claim settlement ratio of the insurer, the better are your chances of securing the financial future of your family. While the claim settlement ratio is important, it is equally important to check the total number of claims that were settled by the insurance company. Only if the company has settled a good number of claims, the claim settlement ratio has a significance.

Solvency ratio:

The solvency ratio indicates whether the insurance company you choose will be financially capable of settling your term insurance claim if the need arises. As per IRDAI guidelines, every life insurance company should maintain a solvency ratio of 1.5. In the case of a natural disaster, the insurance company will receive a large number of insurance claims in a very short span of time. Since the company will have to settle a massive number of claims quickly, it is in this situation that the solvency ratio becomes more significant. The financial security of your dependents is based on the financial stability of the insurance company. Even though a natural disaster may seem unlikely, ignoring such important aspects could result in compromising your family’s financial security in your absence.

Critical illness rider:

A term insurance plan covers your family's future in the event of your death during the policy term. Death of the breadwinner of the family is not the only time when your family comes under threat of financial security. A critical illness such as cancer, brain tumour or heart disease can cost a lot of money and put your family in a difficult financial situation. Critical illness rider pays the cover amount immediately on diagnosis of critical illnesses covered under the critical illness rider attached to the term insurance plan. Your family needs to submit medical documents confirming the diagnosis. The critical illness cover helps your family to manage the high cost of treatment and ensures that your family has enough means to sustain a normal life. Premiums paid towards critical illness rider are eligible to avail tax benefits under Section 80D of the Income Tax Act, 1961. People generally opt for critical illness rider cover along with term insurance to enhance the coverage of the life insurance policy.

Additional covers available:

Term insurance plans provide a basic life cover in which your family will receive the sum insured if you die during the policy term. If your primary motive is to secure the financial future of your family in your absence, then you must make sure that you choose a term insurance plan with comprehensive covers and benefits. Here are some of the benefits that you must look at while comparing term insurance plans.

  • Accidental death rider: Accidental death benefit rider pays an additional sum assured to your nominee in case your death occurs due to an accident. Most insurance companies will offer you term insurance plans with additional death rider to enhance the policy coverage.
  • Waiver of premium: In case the policyholder gets permanent disability, the term insurance plan will continue without the need to pay the remaining premium.
  • Income benefit: Some term insurance plans offer a regular income to your family members. As per this option, rather than a lump sum amount, the insurer will pay a steady income from the plan. This option comes handy if you wish to provide your family with a regular income even in your absence.

Premium cost:

It is advisable to narrow down the list of term insurance policies based on the parameters listed above. After that, you can look at the cost factor to make your final decision. Make sure that you don’t compromise on any of the points discussed above just because of the insurance cost. It is important to note that premiums paid for term insurance plans are eligible for tax deductions under Section 80C.

While choosing a term insurance plan, determine whether you are buying a plan offline or online. This might make a huge difference in your purchase. Buying insurance policy online through several comparisons is advantageous and economical. You get to compare different term insurance plans in terms of cost, features and other parameters. There are no intermediaries involved, and the insurance plans are fairly priced. Moreover, the decision made is unbiased.

Your life is important and hence, it is vital to have a term insurance plan. It not only involves money, but also becomes the support of your family when you are gone. It is crucial to make informed decisions. Don’t buckle under peer pressure and buy the first term insurance plan you come across. Term insurance policy provides sufficient coverage at a reasonable cost. However, it is critical to first analyse your term insurance requirements with respect to your age, coverage and future monetary needs of your family. Explore and choose the best term insurance policy that offers you an opportunity to customise your policy as per your requirement.

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Chaitali Mehendale
Written by Chaitali Mehendale
Chaitali Mehendale is an avid reader, blogger and traveller. When she is not busy writing stupendous content, she prefers to explore new places and meet new people!